03/04/2009 11:52:32 PM EST
FREE DOWNLOAD: Section 41.22 through 41.26 of the New Appleman Insurance Law Practice Guide - excerpt of Chapter 41 - The Scope of the Exclusions Under Employment Practices Liability (EPL) Insurance
In sections 41.22 through 41.26 in their chapter on “Understanding Employment Liability Insurance,” in the New Appleman Insurance Law Practice Guide, L.D. Simmons, II and Lowndes Christopher Quinlan provide insights into the many exclusions that are found in EPL policies. Those exclusions fall into two broad categories: those that are related to employment laws and those that are not.
Section 41.23 of their chapter states that EPL policies frequently contain exclusions that are related to these employment laws:
· The Consolidated Omnibus Budget Reconciliation Act (COBRA);
· The Americans with Disabilities Act (ADA);
· Workers’ compensation laws; and
· Unemployment insurance, social security or disability benefits laws.
The key issue that has arisen involving the FLSA exclusion is whether that exclusion applies to state law counterparts of the FLSA. The Seventh Circuit said “yes” in its 2007 decision, Farmers Auto. Ins. Ass’n v. St. Paul Mercury Ins. Co., but in 2006 the California Court of Appeal found in SWH Corp. v. Select Ins. Co. that the exclusion in the EPL policy under consideration did not apply to California wage and labor laws due to its ambiguity. Section 41.23 examines these and other cases pointing to the phrasing of the exclusions as being the decisive factor. The section goes on to note that although it appears that no courts have interpreted EPL policy exclusions for claims based on violations of workers’ compensation, social security or disability insurance, courts have upheld workers’ compensation exclusions in many other types of liability policies. Similarly, a court has upheld an ADA exclusion in a CGL policy and Section 41.23 discusses that case.
Underwriters sometimes combine the exclusion for ADA claims with the exclusion for non-monetary relief. The non-monetary relief exclusions in EPL policies typically specify claims for:
· Injunctive relief;
· Declaratory relief;
· Job reinstatement;
· Education/sensitive programs related to wrongful employment acts; or
· Any other equitable remedy, including the costs incurred to comply with an equitable remedy.
Section 41.23 further considers an exception that is present in most employment-law related exclusions: the exception for retaliation. It evaluates dilemmas for an insured as to providing notice of a potential claim of retaliation and provides strategic advice.
Section 41.24 considers EPL policy exclusions not related to employment laws, including:
- Prior knowledge/prior notice exclusions;
- Bodily injury and property damage;
- Moral hazard exclusions, including illegal profit, dishonest, criminal and fraudulent conduct exclusions.
Cases interpreting these exclusions are presented. Most intentional act exclusions include a non-imputation clause, which provides that the insurer will not impute the acts of one policyholder to any of the other policyholders for determining the application of the dishonesty exclusion. Courts have typically interpreted the criminal, dishonest and fraudulent acts narrowly. Moreover, these moral hazard exclusions are unlikely to bar the insurer’s obligations with respect to “mixed actions,” where the claimant alleges criminal, intentional and negligent conduct.
Section 41.25 notes that a few EPL policies have exclusions for pollution claims; most appear to have an absolute pollution exclusion with a single exception for retaliation. However, the authors observe, “It is difficult to imagine a pollution claim intersecting with an employment practices liability claim, except in the context of a whistle-blower retaliation claim.”
The Part of Chapter 41 devoted to EPL policy exclusions closes with Section 41.26 on contractual liability (indemnification) exclusions. EPL policies often include an exclusion for any amount any policyholder is obligated to pay because it assumed another’s liability for a wrongful practice under an agreement. The contractual indemnification exclusion prevents policyholders from extending their coverage to a third party through an indemnification agreement.
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